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The Governor and Company of the Bank of Ireland v Eteams (International) Limited (In Voluntary Liquidation) [2017] IEHC 393 (the Case) has recently clarified Ireland’s position on the test to determine if a transaction constitutes a true sale of book debts or instead amounts, in substance, to the creation of a mortgage and charge.


The issue in this Case was whether an agreement (the Agreement) Eteams (International) Limited (the Company) entered into with Bank of Ireland (the Bank) was a debt purchase agreement, under which the bank acquired ownership of the Company’s book debts (the Debts) or if it was a loan agreement, under which the bank merely took a charge over those Debts.

The issue

If the Agreement was characterised as a debt purchase agreement, then the Debts would be the property of the Bank, but if the Company merely created a charge over the Debts in favour of the Bank then the Bank would rank as an unsecured creditor as the charge would be void against the liquidator of the Company because it would not have been registered in accordance with s99 Companies Act 1963.

True sale or mortgage and charge?

In deciding whether the Agreement amounted to a true sale or a charge over the Debts, the Court noted that although there has been no case law in Ireland on the narrow point of distinction between a transaction of sale and a transaction of mortgage and charge, the characterisation of such arrangements has been the subject of substantial English jurisprudence.

The approach of the English courts has been to first consider whether the agreement masked the true transaction, or in other words if the arrangement was a “sham”. If there was no sham arrangement, then the courts would look at the form of the agreement to determine if the substance of the transaction was one of true sale or mortgage and charge.

The Court referred to an English case[1] which set out the essential differences between a transaction of sale and a transaction of a mortgage and charge:

1. In a transaction of sale, the seller isn’t entitled to the return of the property by repaying the buyer. In the case of a mortgage or charge, the borrower is entitled to have his property returned once the money due has been repaid.

2. If property subject to a mortgage/charge is sold for more than the amount owed to the lender, the lender must account for the surplus to the borrower. If a buyer of property sells it for a profit, he does not have to account to the seller for that profit.

3. Similarly if the mortgaged/charged property is sold at a loss, the lender is entitled to recover the balance of money owed from the borrower. A buyer is not entitled to the same compensation if he sells purchased property at a loss.

A later English case[2] applied these principles and further held that even the right of redemption (described at point 1) is not necessarily inconsistent with a transaction of sale.


The Court found that, as both parties agreed, there was no suggestion that the agreement was a sham. Having then considered the terms of the agreement as a whole, the Court concluded that the agreement was, in substance, one of sale and purchase rather than one of loan and charge. This meant that the bank owned the Debts and therefore they fell outside the liquidation of the Company. The liquidator was ordered to pay to the bank the proceeds of the Debts which he (or the Company) had collected and received.


Although the Courts have been reluctant to re-characterise a transaction expressed as a sale as something other than a sale, parties to debt purchase agreements should ensure that the language used in the agreement makes it clear that the transaction is intended to be a transfer by way of sale as opposed to an assignment by way of security. This will minimise the risk of the agreement being re-characterised as a security assignment.

[1] Romer L.J.’s judgement in Re George Inglefield Ltd [1993] Ch.1.

[2] Welsh Development Agency v Expert Finance Co Limited [1992] BCLC 148.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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